Support

A cookie is a piece of data stored by your browser or device that helps websites like this one recognize return visitors. We use cookies to give you the best experience on BNA.com. Some cookies are also necessary for the technical operation of our website. If you continue browsing, you agree to this site’s use of cookies.

Marketing Services

Bloomberg Next marketing services allow clients to elevate their brands and extend their reach through our established and trusted expertise, enhanced with engaging event production, appealing design, and compelling messaging.

Individuals could face a hefty repayment to the IRS if they used the tax credits proposed
in the House GOP health care bill and ended up earning more than they anticipated.

The Affordable Care Act capped the amount the Internal Revenue Service can recoup
from individuals who receive a premium tax credit that is larger than the amount they
are due to receive based on actual income. The limit starts at $300 for individuals
earning less than $23,760, according to 2016 guidelines, and increases in line with
income levels.

But the GOP plan doesn’t include those limits—which means the agency could require
all individuals, regardless of income, to pay back excess tax credits in full if they
earn more than they reported on their tax return in a previous year, health policy
researchers and tax practitioners told Bloomberg BNA. Combined with the comparatively
smaller credits individuals can receive under the GOP bill, that could be a significant
hardship on middle-
and low-income taxpayers, they said.

“There are no such protections here,”
Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities,
said March 14.

The bill’s potential burden on taxpayers has come into focus in recent days, after
the Congressional Budget Office found that insurance premiums would initially increase
under the plan, which House leadership hopes to pass by the end of the month. Since
the CBO released its report March 13, Republicans have also faced steady criticism
because the report found 24 million people could lose their insurance in the next
decade under the bill’s new system.

Transition to Be Taxing

The legislation, the American Health Care Act, repeals the caps for the ACA’s premium
tax credits for 2018 and 2019, and it provides no such caps for the new refundable
tax credit created under the bill. The proposed tax credits have drawn the ire of
Democratic lawmakers and even some moderate Republicans who say they are insufficient
for low-income and elderly individuals.

A 27-year-old making $20,000 a year gets $3,225 a year in credits under the ACA on
average, an amount that would fall to $2,000 under the GOP plan, according to the
Kaiser Family Foundation. The plan’s credits increase with age but are capped at incomes
of $75,000 for individuals and $150,000 for joint filers.

Those decreases would be compounded by the complexity of the transition period, said
Seth J. Chandler, a visiting scholar at the Mercatus Center at George Mason University.
Chandler specializes in insurance law.

Because the two-year transition period makes tax credits dependent on the ages and
incomes of household members, it is “more complicated than either the ACA or where
we end up,” he said.

Hard to Predict

Many low-income taxpayers hold multiple part-time jobs or work seasonal jobs, which
makes it hard for them to accurately predict their annual income, practitioners said.
Thus, the ACA caps helped ensure they wouldn’t need to repay large amounts to the
IRS when they likely had spent the money over the course of the year.

“It’s certainly something that could be problematic for low-income taxpayers who aren’t
going to have a few hundred dollars, or who knows how much, come tax time because
they were accidentally getting $20 a month in advanced tax credits,”
said Garrett A. Fenton, a member at Miller and Chevalier Chartered in Washington.

Not only could individuals owe more money under the Republican plan than they would
under the ACA, but the IRS could also take more aggressive steps to get the money
back. The agency could place liens or levies on taxpayers who owe the money—a step
that is harsher than elements of the ACA such as the individual mandate, which imposes
a penalty on taxpayers that fail to purchase insurance, said Timothy Jost, a professor
emeritus at the Washington and Lee University School of Law.

It is more common for the agency to freeze tax refunds owed to individuals who must
pay back the credit, but that still packs a punch. “For many people, your tax refund
is the biggest amount you get all year long,” Jost said.

On the Other Hand

The argument for removing the cap is that the extra money isn’t something the taxpayers
are entitled to, practitioners said. Lawmakers may also want to prevent fraud in which
individuals try to game the system to claim more funds than they should, the practitioners
said.

“Obamacare fails to treat taxpayers fairly—in some cases, it ignores inaccurate overpayments,
an approach that does not exist for any other benefit in the tax code. The American
Health Care Act simply helps ensure that individuals and families receive the right
benefit amount and that people who receive overpayments
(for which they’re not eligible) pay them back—just like all other benefits in the
tax code,” Lauren Aronson, press secretary for the House Ways and Means Committee,
said in a statement to Bloomberg BNA.

Still, Republicans may struggle to defend the change to other lawmakers who already
say the credits in the bill are insufficient. The House Budget Committee is set to
mark up the bill March 16, and House leaders aim to hold a floor vote the following
week.

“You would think that would fit right into the narrative—that the bill is providing
these tax cuts for the wealthy and, as part of that, you’ve got low-income people
who are now not only going to have lesser subsidies but going to have this cap removed,
and going to have to pay back amounts they would otherwise not have to pay back previously,”
Fenton said.

To contact the reporter on this story: Colleen Murphy in Washington at
cmurphy@bna.com

To contact the editor responsible for this story:
Meg Shreve at
mshreve@bna.com

All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.

Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)

Notify me when updates are available (No standing order will be created).

This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.

Put me on standing order

Notify me when new releases are available (no standing order will be created)